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Disagreement in Collateral Valuation

Uploaded: Aug 3, 2023

Jordan Martel, Michael Woeppel

We present a model of secured lending in which borrowers and lenders agree to disagree about collateral values. Lenders' beliefs distort equilibrium prices of collateralized assets, and the extent to which lenders' beliefs distort prices is mediated by borrower riskiness....

Smooth versus Harsh Regulatory Interventions and Policy Equivalence

Uploaded: Aug 3, 2023

Linda Schilling

Policy makers have developed different forms of policy intervention for stopping,
or preventing runs on financial firms. This paper provides a general framework to
characterize the types of policy intervention that indeed lower the run-propensity
of investors...

Voters, Bailouts, and the Size of the Firm

Uploaded: Aug 3, 2023

Linda Schilling

I present a political-economic theory to explain bailouts for failing firms in the
presence of non-voters (foreigners). The governing politician uses the bailout as
a tool to sway voters to maximize re-election chances. Bailouts partially leak to
...

Overconfidence and market efficiency with heterogeneous agents

Uploaded: Aug 2, 2023

Diego Garcia, Branko Urosevic

We study financial markets in which both rational and overconfident agents coexist and make endogenous information acquisition decisions. We demonstrate the following irrelevance result: when a positive fraction of rational agents (endogenously) decides to become informed in equilibrium, prices are...

Noise and aggregation of information in large markets

Uploaded: Aug 2, 2023

Diego Garcia, Branko Urosevic

We study a novel class of noisy rational expectations equilibria in markets with large number of agents. We show that, as long as noise (liquidity traders, endowment shocks) increases with the number of agents in the economy, the limiting competitive...

Optimal contracts with privately informed agents and active principals

Uploaded: Aug 2, 2023

Diego Garcia

This paper considers an optimal contracting problem between an informed risk-averse agent and a principal, when the agent needs to perform multiple tasks, and the principal is active, namely she can influence some aspect of the agency relationship on top...